Dawson James Securities, Inc. 925 South Federal Highway - Suite #600 Boca Raton, FL33432

Dawson James Securities, Inc.

925 South Federal Highway - Suite #600

Boca Raton, FL  33432

 

December 30, 2011

 

 

Shai N. Gozani, MD, PhD

Chief Executive Officer

NeuroMetrix, Inc.

62 Fourth Avenue

Waltham, MA 02451

 

Dear Shai:

 

 

1.           Transaction Summary. During the term of this engagement, as defined in paragraph 7, DJSI will be the exclusive placement agent to the Company with respect to the Registered Placement pursuant to the registration statement on Form S-1 (Reg. No. 333-178165), which may be amended and supplemented (as amended and supplemented, the “Registration Statement”) as filed with the Securities and Exchange Commission (the “SEC”).  The securities to be offered in the Registered Placement (the “Securities”) may be sold in one or more closings during the term of this engagement (each, a “Closing”).  The specific terms of the Registered Placement will depend on the results of DJSI’s due diligence, as well as market conditions, and will be subject to negotiation between the Company and DJSI and approval by the Company.

 

2.           Best Efforts.  It is understood that DJSI’s involvement is strictly on a best efforts basis and that the consummation of the Registered Placement will be subject to, among other things, market conditions.

 

3.           Interim Activity.  Except (i) in connection with (a) the exercise of warrants and options outstanding prior to the closing of the Registered Placement,  (b) sales of common stock in connection with the Company’s Employee Stock Purchase Plan, and (c) the Company’s grant of equity instruments to its officers, directors, employees, and consultants under its equity compensation plan, and (ii) as contemplated by this letter agreement, the Company will not directly during the term of this engagement, without DJSI’s prior written consent sell shares of capital stock or issue warrants or options.

 

Notwithstanding the foregoing and the exclusive nature of this engagement, DJSI hereby acknowledges and agrees that during the term of this engagement, the Company may assist with the identification of one or more other persons or entities to act as potential selected dealers for the distribution by DJSI of the Securities to be sold in the Registered Placement.

 

4.           Information Provided to DJSI.   In connection with our engagement, the Company has agreed to furnish to DJSI, on a timely basis, all relevant information needed by DJSI or its advisors or legal counsel to perform under the terms of this letter agreement.  During our engagement, it may be necessary for us:  to interview the management of, the auditors for, and the consultants and advisors to the Company; to rely (without independent verification) upon data furnished to us by them; and to review any financial and other reports relating to the business and financial condition of the Company as we may determine to be relevant under the circumstances.  In this connection, the Company will make available to us such information as we may request, including information with respect to the assets, liabilities, earnings, earning power, financial condition, historical performance, future prospects and financial projections and the assumptions used in the development of such projections of the Company.  We agree that all nonpublic information obtained by us in connection with our engagement will be held by us in strict confidence and will be used by us solely for the purpose of performing our obligations relating to our engagement.  In that regard, we acknowledge that we are aware of our responsibilities under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, including, without limitation, rules and regulations with respect to insider trading.

 

(a)           Issue a press release as soon as possible following the pricing of the offering upon agreement by the Company and DJSI.  To the extent permissible under Rule 134 under the Securities Act of 1933, as amended (the “Securities Act”), such press release will include the number and price of the Securities offered, the number of and exercise price of the warrants sold as part of the Securities and the gross proceeds from the Registered Placement.

 

(b)           On the date of each Closing, cause outside counsel to the Company to deliver an opinion to DJSI regarding such matters as DJSI shall reasonably request, including the following: (i) good standing in specified jurisdictions , (ii) the Securities sold in the Registered Placement are, or will be upon receipt of payment therefor, duly authorized, validly issued, fully-paid and non-assessable, (iii) the Registered Placement has been duly authorized by the Board of Directors and is not subject to stockholder approval, (iv) the Registered Placement does not conflict with or require notice under (1) the Company’s bylaws or charter or (2) any material agreement to which the Company is a party and which the Company has filed as an exhibit to the Registration Statement pursuant to Item 601(b)(10) of Regulation S-K, except in the case of clause (2), such as could not reasonably be expected to result in a material adverse effect on the Company, and (v) the Registration Statement (except for the financial statements, including the notes and schedules thereto, and other financial and accounting data or information, and the statistical data derived therefrom, included or incorporated by reference therein or omitted therefrom, as to which such counsel shall express no view) appears on its face to be appropriately responsive in all material respects to the requirements of the Securities Act and the rules and regulations issued thereunder.

 

(c)           Prior to the consummation of the Registered Placement, obtain written lock-up agreements restricting the Company, its Officers and its Directors from directly or indirectly selling, offering, contracting or granting any option to sell (including without limitation any short sale), pledge, transfer, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, as amended, or otherwise dispose of any shares, options or warrants to acquire the Company’s common stock, or securities exchangeable or exercisable for or convertible into the Company’s common stock currently or hereafter owned by them either of record or beneficially, or publicly announce an intention to do any of the foregoing.  This restriction terminates after the close of trading of the shares on and including the 90 days after the latest Closing. However, subject to certain exceptions, in the event that either (i) during the last 17 days of the 90-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs or (ii) prior to the expiration of the 90-day restricted period, the Company announces that it will release earnings results during the 16-day period beginning on the last day of the 90-day restricted period, then in either case the expiration of the 90-day restricted period will be extended until the expiration of the 18-day period beginning on the date of the issuance of an earnings release or the occurrence of the material news or event, as applicable, unless DJSI waives, in writing, such an extension.  DJSI may, in its sole discretion and at any time or from time to time before the termination of the 90-day period, without notice, release all or any portion of the securities subject to lock-up agreements.

 

 

 

6.           Scope of Engagement.  The Company acknowledges that we will not make, or arrange for others to make, an appraisal of any physical assets of the Company.

 

 

7.           Term of Engagement.  Our representation on an exclusive basis will continue until the earlier of (i) the date of the last Closing of the Registered Placement and (ii) twelve (12) months from the date first set forth above; however, either party may terminate the relationship at any time upon 15 business days prior written notice to the other party; provided, that no such expiration or termination will affect the matters set forth in Section 9-18 of this letter agreement and reimbursement of legal expenses pursuant to Section 8(a).

 

8.           Fees and Expenses.

 

(b)          Compensation for our investment banking services will be as follows:

 

(i)           Transaction Fee.  Upon each Closing of the Registered Placement, the Company will pay DJSI a transaction fee in cash (the “Fee”) in an amount equal to 6.0% of the gross proceeds received from sale of its Securities in such Closing.  DJSI agrees that the Fee is contingent on the Closing of the Registered Placement, and that the Company will not be obligated to pay the Fee unless the Registered Placement is completed. For the avoidance of doubt, the Fee shall only be due on proceeds received at each Closing, but shall not be due on any additional amounts that the Company may receive upon the exercise of warrants or options issued in the Registered Placement.

 

(ii)           Transaction Fee Warrants.  Upon each Closing of the Registered Placement, the Company will issue DJSI warrants to purchase 5.0% of the common stock sold in such Registered Placement with an exercise price equal to 125% of the public offering price of the Securities.  The warrants will have a term of five (5) years from the closing of the Registered Placement and will be exercisable after twelve (12) months from the date of issuance.  The warrants will be issued pursuant to the warrant purchase agreement substantially in the form attached as Exhibit B.

 

(c)          All warrants issued to DJSI shall be subject to the following additional terms and conditions.

 

(i)           The DJSI warrants shall not have anti-dilution terms that allow DJSI and related persons to receive more shares or to exercise at a lower price than originally agreed upon at the time of the Registered Placement when the public shareholders have not been proportionally affected by a stock split, stock dividend, or other similar event.

 

(ii)          The DJSI warrants shall not have anti-dilution terms that allow DJSI and related persons to receive or accrue cash dividends prior to the exercise or conversion of the DJSI warrants.

 

(iii)          For a period of six months after the issuance date of the DJSI warrants (which shall not be earlier than the respective Closing date of the Registered Placement), neither the DJSI warrants nor any warrant shares issued upon exercise of the DJSI warrants shall be (A) sold, transferred, assigned, pledged, or hypothecated, or (B) the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the securities by any person for a period of 180 days immediately following the date of issuance or commencement of sales of the Registered Placement, except the transfer of any security as permitted by the FINRA rules.

 

(iv)         The DJSI warrants shall include any other terms and conditions, or any modifications to the above terms and conditions, as may be required under the FINRA rules.

(d)           Except as set forth above, the warrants issued to DJSI shall have terms identical to those sold to the investors in the Registered Placement.  The Company acknowledges and agrees that it will be responsible for, and shall pay all of the Company’s costs and expenses related to the purchase, sale and delivery of its Securities in the Registered Placement. This includes, without limitation, all fees and expenses of filing with the SEC and FINRA, all Blue Sky fees and expenses, fees and disbursements of counsel and accountants for the Company, printing costs, and any Company specific road show costs and expenses of Company management and/or staff.

 

9.            Indemnity and Contribution.  The parties agree to the terms of DJSI’s standard indemnification agreement, which is attached hereto as Appendix A and incorporated herein by reference. The provisions of this paragraph 9 shall survive any termination of this letter agreement.

 

10.           Other Business.  The Company understands that if DJSI is asked to act for the Company in any other formal additional capacity relating to this engagement but not specifically addressed in this letter, then such activities shall constitute separate engagements and the terms and conditions of any such additional engagements will be embodied in one or more separate written agreements, containing provisions and terms to be mutually agreed upon, including without limitation appropriate indemnification provisions.

 

11.           Other DJSI Activities.  DJSI is a full service securities firm engaged in securities trading and brokerage activities as well as investment banking and financial advisory services.  In the ordinary course of our trading and brokerage activities, DJSI or its affiliates may hold positions, for its own account or the accounts of customers, in equity, debt or other securities of the Company or any other company that may be involved in a Registered Placement with the Company.  DJSI represents that there are no existing agreements between DJSI and any of the Company’s stockholders who will execute a lock-up agreement, providing consent to the sale of shares prior to the expiration of the lock-up period.

 

12.           Compliance with Applicable Law.  In connection with this engagement, the Company and DJSI will comply with all applicable federal, state and foreign securities laws and other applicable laws.

 

13.           Independent Contractor.  DJSI is and at all times during the term hereof will remain an independent contractor, and nothing contained in this letter agreement will create the relationship of employer and employee or principal and agent as between the Company and DJSI or any of its employees.  Without limiting the generality of the foregoing, all final decisions with respect to matters about which DJSI has provided services hereunder shall be solely those of the Company, and DJSI shall have no liability relating thereto or arising therefrom.  It is understood that DJSI’s responsibility to the Company is solely contractual in nature and that DJSI does not owe the Company, or any other party, any fiduciary duty as a result of its engagement.  DJSI shall maintain a detailed record of potential purchasers that received a preliminary prospectus during the offering.

 

 

 

15.           Announcements.  The Company grants to DJSI the right to place customary announcement(s) of this engagement (following completion of the Registered Placement) in certain newspapers and to mail announcement(s) to persons and firms selected by DJSI, and all costs of such announcement(s) will be borne by DJSI.   DJSI agrees that all such announcements shall be made in compliance with federal and state securities laws, and subject to prior approval by the Company.

 

16.           Governing Law and Arbitration.  This agreement shall be governed by and construed under the laws of the State of Florida applicable to contracts made and to be performed entirely within the State of Florida.

 

17.           General Provisions.  No purported waiver or modification of any of the terms of this letter agreement will be valid unless made in writing and signed by the parties hereto.  Section headings used in this letter agreement are for convenience only, are not a part of this letter agreement and will not be used in construing any of the terms hereof.  This letter agreement constitutes and embodies the entire understanding and agreement of the parties hereto relating to the subject matter hereof, and there are no other agreements or understandings, written or oral, in effect between the parties relating to the subject matter hereof.  No representation, promise, inducement or statement of intention has been made by either of the parties hereto which is to be embodied in this letter agreement, and none of the parties hereto shall be bound by or liable for any alleged representation, promise, inducement or statement of intention, not so set forth herein.  No provision of this letter agreement shall be construed in favor of or against either of the parties hereto by reason of the extent to which either of the parties or its counsel participated in the drafting hereof.  If any provision of this letter agreement is held by a court of competent jurisdiction to be invalid, illegal or unenforceable, the remaining provisions hereof shall in no way be affected and shall remain in full force and effect.  This letter agreement may be executed in any number of counterparts and by facsimile signature.

 

18.           Nondisclosure.  The Company agrees that any information or advice (other than any information or advice relating to the U.S. tax treatment and U.S. tax structure of any transaction) rendered by DJSI or any of DJSI representatives in connection with this engagement is for the confidential use of the Company and its agents, advisors and representatives only and the Company will not, and will not permit any other third party to, disclose or otherwise refer to such advice or information or to DJSI in any manner without the prior written consent of DJSI.

 

[Signature Page Follows]

 

	Very truly yours,
	DAWSON JAMES SECURITIES, INC.
	By:	/s/ Joseph E. Balagot
		Joseph E. Balagot
		Managing Partner
	By:	/s/ Thomas W. Hands
		Thomas W. Hands
		President

 

The undersigned hereby accepts, agrees to and becomes party to the foregoing letter agreement, effective as of the date first written above.

 

NEUROMETRIX, INC.
By:	/s/ Shai N. Gozani, MD, PhD
	Shai N. Gozani, MD, PhD
	Chief Executive Officer

 

APPENDIX A-INDEMNIFICATION AGREEMENT

 

The Company agrees to indemnify and hold harmless DJSI and its officers, directors, employees, affiliates (as such term is defined in Rule 501(b) under the Securities Act of 1933, as amended) and controlling persons (within the meaning of Section 15 of the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange Act of 1934, as amended) (DJSI and each such other persons are collectively and individually referred to below as an “Indemnified Party”) from and against any and all loss, claim, damage, liability and expense whatsoever, as incurred, including, without limitation, reasonable costs of any investigation, legal and other fees and expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted, to which the Indemnified Party may become subject under any applicable federal or state law (whether in tort, contract or on any other basis) or otherwise, (i) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in the registration statement (including documents, incorporated by reference) (the “Registration Statement”) or arising out of or based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (ii) related to the performance by the Indemnified Party of the services contemplated by this letter agreement (including, without limitation, the offer and sale of the Securities) and will reimburse the Indemnified Party for all expenses (including reasonable legal fees and expenses) in connection with the investigation of, preparation for or defense of any pending or threatened claim or any action or proceeding arising therefrom, whether or not the Indemnified Party is a party and whether or not such claim, action or proceeding is initiated or brought by the Company.  The Company will not be liable under clause (ii) of the foregoing indemnification provision to the extent that any loss, claim, damage, liability or expense is found in a judgment by a court or arbitrator to have resulted from the Indemnified Party’s willful misconduct, gross negligence, or bad faith.  The Company also agrees that the Indemnified Party shall have no liability (whether direct or indirect, in contract, tort or otherwise) to the Company related to, or arising out of, the engagement of the Indemnified Party pursuant to, or the performance by the Indemnified Party of the services contemplated by, this letter agreement except to the extent that any loss, claim, damage, liability or expense is found in a judgment by a court or arbitrator to have resulted from the Indemnified Party’s willful misconduct, gross negligence, or bad faith.

If the indemnity provided above shall be unenforceable or unavailable for any reason whatsoever, the Company, its successors and assigns, shall contribute to all such losses, claims, damages, liabilities and expenses (including, without limitation, reasonable costs of any investigation, legal or other fees and expenses incurred in connection with, and any amounts paid in settlement of, any action, suit or proceeding or any claim asserted) (i) in such proportion as is appropriate to reflect the relative benefits received by the Company and DJSI under the terms of this letter agreement or (ii) if the allocation provided for by clause (i) of this sentence is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i), but also the relative fault of the Company and DJSI in connection with the matter(s) as to which contribution is to be made.  The relative benefits received by the Company and DJSI shall be deemed to be in the same proportion as the fee the Company actually pays to DJSI bears to the total value of the consideration paid or to be paid to the Company in the Registered Placement.  The relative fault of the Company and DJSI shall be determined by reference to, among other things, whether any untrue or alleged untrue statement of material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by DJSI and the Company’s and DJSI’s relative intent, knowledge, access to information and opportunity to correct.  The Company and DJSI agree that it would not be just or equitable if contribution pursuant to this paragraph were determined by pro rata allocation or by any other method of allocation which does not take into account these equitable considerations. Notwithstanding the foregoing, to the extent permitted by law, in no event shall the Indemnified Party’s share of such losses, claims, damages, liabilities and expenses exceed, in the aggregate, the fee actually paid to the Indemnified Party by the Company.  The Company further agrees that, without DJSI’s prior written consent, which consent will not be unreasonably withheld, it will not enter into any settlement of a lawsuit, claim or other proceeding arising out of the transactions contemplated by this agreement unless such settlement includes an explicit and unconditional release from the party bringing such lawsuit, claim or other proceeding of all  such lawsuits, claims, or other proceedings against the Indemnified Parties.

 

The Indemnified Party will give prompt written notice to the Company of any claim for which it seeks indemnification hereunder, but the omission to so notify the Company will not relieve the Company from any liability which it may otherwise have hereunder except to the extent that the Company is damaged or prejudiced by such omission or from any liability it may have other than under this Appendix A.  In addition to the Company’s other obligations hereunder and without limitation, the Company agrees to pay monthly, upon receipt of itemized statements therefore, all reasonable fees and expenses of counsel incurred by an Indemnified Party in defending any claim of the type set forth in the preceding paragraphs or in producing documents, assisting in answering any interrogatories, giving any deposition testimony or otherwise becoming involved in any action or response to any claim relating to the engagement referred to herein, or any of the matters enumerated in the preceding paragraphs, whether or not any claim is made against an Indemnified Party or an Indemnified Party is named as a party to any such action.

EXHIBIT B

FORM OF WARRANT PURCHASE AGREEMENT

This Warrant Purchase Agreement, dated as of __________ __, 2012 (the “Agreement”), is entered into by and between NeuroMetrix, Inc., a Delaware corporation (the “Company”), and Dawson James Securities, Inc. (“DJSI”).

 

A.           Capitalized terms not otherwise defined herein shall have the meanings given such terms in the engagement letter between the Company and DJSI dated [December 30, , 2011 (the “Engagement Letter Agreement”).

 

B.           The Company and DJSI desire to set forth in this Agreement the terms and conditions of the warrant to be issued by the Company to DJSI upon the closing of the Registered Placement.

 

NOW, THEREFORE, in consideration of the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:

 

1.           Issuance of Warrant.  Upon each closing of the Registered Placement, the Company will issue DJSI a 5-year warrant to purchase an amount equal to 5.0% of the Common Stock sold in such closing of the Registered Placement (the “DJSI Warrants”).  For clarification, no warrants shall be issuable to DJSI upon exercise of any warrants included in the Securities.

 

2.           Exercise Price.  The exercise price of the DJSI Warrants shall be 125% of the price of the Securities issued to the investors at each closing in the Registered Placement.

 

3.           Term.  The DJSI Warrants shall expire and not be exercisable or convertible more than five years from the closing of the Registered Placement.

 

4.           Similar Terms.  Except as provided in this Agreement, the DJSI Warrants shall be identical to the warrants issued in the Registered Placement.

 

5.           Registration Rights.  The DJSI Warrants shall have included in the Registration Statement as defined in the Engagement Letter Agreement

 

6.           Anti-dilution Rights. (a) The DJSI Warrants shall not have anti-dilution terms that allow DJSI and related persons to receive more shares or to exercise at a lower price than originally agreed upon at the time of the Registered Placement when the public shareholders have not been proportionally affected by a stock split, stock dividend, or other similar event.  (b) The DJSI Warrants shall not have anti-dilution terms that allow DJSI and related persons to receive or accrue cash dividends prior to the exercise or conversion of the DJSI Warrants.

 

7.           Non Transfer.  FOR A PERIOD OF SIX MONTHS AFTER THE ISSUANCE DATE OF THE DJSI WARRANTS (WHICH SHALL NOT BE EARLIER THAN THE CLOSING DATE OF THE REGISTERED PLACEMENT), NEITHER THE DJSI WARRANTS NOR ANY WARRANT SHARES ISSUED UPON EXERCISE OF THE DJSI WARRANTS SHALL BE (A) SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR HYPOTHECATED, OR (B) THE SUBJECT OF ANY HEDGING, SHORT SALE, DERIVATIVE, PUT, OR CALL TRANSACTION THAT WOULD RESULT IN THE EFFECTIVE ECONOMIC DISPOSITION OF THE SECURITIES BY ANY PERSON FOR A PERIOD OF 180 DAYS IMMEDIATELY FOLLOWING THE DATE OF ISSUANCE OR COMMENCEMENT OF SALES OF THE REGISTERED PLACEMENT, EXCEPT THE TRANSFER OF ANY SECURITY AS PERMITTED BY THE FINRA RULES.

 

6.           Engagement Letter Agreement.  Except as amended by this Agreement, the terms of the Engagement Letter Agreement remain in full force and effect.

 

7.           Miscellaneous.  This Agreement may be executed in counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.  This Agreement shall be governed by and construed under the laws of the State of Florida applicable to contracts made in and to be performed entirely within the State of Florida.

 

[Signature Page Follows]

 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.

	By:	/s/ Thomas W. Hands__
		Thomas W. Hands
		President